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on Financial Markets |
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Issue of 2012‒09‒22
four papers chosen by |
| By: | Dritan Gjika; Roman Horvath |
| Abstract: | We examine time-varying stock market comovements in Central Europe employing the asymmetric dynamic conditional correlation multivariate GARCH model. Using daily data from 2001 to 2011, we find that the correlations among stock markets in Central Europe and between Central Europe vis–à–vis the euro area are strong. They increased over time, especially after the EU entry and remained largely at these levels during financial crisis. The stock markets exhibit asymmetry in the conditional variances and in the conditional correlations, to a certain extent, too, pointing to an importance of applying sufficiently flexible econometric framework. The conditional variances and correlations are positively related suggesting that the diversification benefits decrease disproportionally during volatile periods. |
| Keywords: | stock market comovements, Central Europe, financial crisis |
| JEL: | G01 G15 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2012-1035&r=fmk |
| By: | Sanglim Lee (University of Connecticut) |
| Abstract: | It is well known that the uncovered interest parity condition does not hold empirically, implying that investments in high-interest rate currencies in foreign currency markets result in a positive expected excess return. Verdelhan (2010) successfully explains this phenomenon by referring to exogenous consumption processes and external habit formation. In this paper, I extend his model by using an international real business cycle model (Backus, Kehoe, and Kydland 1994) with internal habit formation. When the production-based stochastic discount factor is used, this benchmark model, driven by total factor productivity, accounts for this empirical evidence as well. JEL Classification: E32, E44, F31, F44 Key words: Currency Excess Return, Real Business Cycle, Forward Premium Puzzle |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-16&r=fmk |
| By: | Murat Duran; Doruk Kucuksarac |
| Abstract: | Cross currency swaps are agreements to exchange interest payments and principals denominated in two different currencies and usually have one leg fixed and the other floating. The interest rate on the fixed leg is closely related to the yields on the securities of the same tenure and currency. In Turkey, cross currency swaps and treasury bonds have similar cash flow structures and risk profiles. Hence these markets are usually considered as alternatives to each other. In this context, using daily data for the period August 2008 – January 2012, this study investigates the level relationship between the cross currency swap rates and treasury bond yields of 1-month to 4-year tenures by the cointegration testing procedure suggested by Pesaran, Shin and Smith (PSS). Our empirical results indicate that, at shorter tenures, cross currency swap rates and treasury bond yields have a one-to-one long-run equilibrium relationship and hence the deviations from the equilibrium are quickly arbitraged away. On the other hand, the relationship becomes weaker as the tenure exceeds 6 months and completely disappears after 1 year. We also carry out some robustness checks and the results obtained from these analyses support our initial findings. |
| Keywords: | covered interest parity, limits to arbitrage, bond market, currency swap, cointegration |
| JEL: | G12 G14 E43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1223&r=fmk |
| By: | Bulent Koksal |
| Abstract: | We analyze different dimensions of liquidity on the Istanbul Stock Exchange (ISE) by using detailed order and transaction data for all ISE stocks. We estimate the limit order book on the ISE at each point in time and examine the intraday behavior of spreads, depths, returns and volume. We find that the spreads follow an L-shaped pattern whereas returns, number of trades and volume follow a U-shaped pattern. Means of these liquidity variables are significantly different for different time intervals in a given day. Another result is that traders use spreads and depths simultaneously to implement their strategies, i.e., wide spreads are accompanied by low depths and vice versa. We also find that spreads are higher on average for more risky stocks and for more active stocks. Information flow as measured by trades of unusual size causes the spreads to increase. Finally there are day-of-week effects on spreads, returns and share volume. |
| Keywords: | Intraday Patterns, Spreads, Returns, Depths, Transaction Volume, Market Liquidity, Limit Order Market, Istanbul Stock Exchange |
| JEL: | G15 G20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1226&r=fmk |